A study on small businesses was released by Office of Advocacy examining the usage of the type of credit by small businesses. The study revealed that the small business firms which utilize trade credit are likely to be more bigger and liquid. They also have lower credit scores. Though the small business firms hold less tangible assets, which utilize no credit are mainly smaller, more liquid, more profitable and they also have a very good credit quality.

According to the study, the amount of credit used as percentage of assets is related positively to the liquidity of the firm. Around three-fifths of the small firms which utilize credit use trade credit.

The firms which utilize no credit can be found mainly in the retail trade and wholesale or service sectors. The manufacturing and sectors go for bank credit and trade credit.

The companies which do not utilize any sort of credit are small and whereas the companies which utilize credit options like bank credit or trade credit are often much larger companies. The small business firms which utilize bank credit are younger, larger and less liquid. The companies that utilize no bank nor trade credit are comparatively much smaller, more profitable and more liquid. They also have better credit quality.

By MND A01